§ Statement of Purpose

The View from 1776 presents a framework to understand present-day issues from the viewpoint of the colonists who fought for American independence in 1776 and wrote the Constitution in 1787. Knowing and preserving those understandings, what might be called the unwritten constitution of our nation, is vital to preserving constitutional government. Without them, the bare words of the Constitution are just a Rorschach ink-blot that politicians, educators, and judges can interpret to mean anything they wish.

"We have no government armed with the power capable of contending with human passions, unbridled by morality and true religion. Our constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other." John Adams, to the Officers of the First Brigade, Third Division, Massachusetts Militia, October 11, 1798.

§ Syndicate

The View From 1776

The Socialist Daily Worker - October 30, 2010

Why both Keynesian monetary and fiscal policy and Milton Friedman’s monetarism will exacerbate the current economic recession or, at best, temporarily boost some consumer spending at the price of fueling inflation.

Austrians? Their solution is mass unemployment and deflation, which in the real world, leads to other issues. Fortunately, no Austrian has or ever will be in charge.

When a farmer is in a drought, you give him water -- unless you don't mind him going under to satisfy your oh-so-pure philosophical position.

Posted by .(JavaScript must be enabled to view this email address) on 10/31 at 05:02 PM

Actually that is not the case unless you try to do it following the use of debt to grow the economy instead of saving and investing the savings.

Debt only enriches the wealthy and gives power to the international banking cartel. It doesn't help the nation or the people in the long run. That is not to say debt doesn't have a proper role to play in finance but, not the way we have abused it for over 80 years. Look at what debt did in the 20's.

Now, we are seeing the exact same thing played out again. The peak came after the depression when people were saving and investing and growing the economy in a more healthy manner. Now, look at this chart of total debt and look as household, corporate, GSE and Financial debt.

As we know from the diminishing return on debt, we have been in decline as a nation from the 60's on. As you can see in that debt chart, that is when we started growing personal and corporate debt again to keep ahead of the decline. Each decade it got worse and people and corporations were borrowing more and more relative to GDP.

Right now, total debt is over 400% to National Income (about $12.6 trillion) which is a much better indicator when deficit spending is propping GDP up.

It now takes 10% deficit to get 2% growth and if real CPI is used, we haven't had a positive quarter for years.

Yes, we will have a depression if we use Austrian Economics now. We will have a worse depression if we don't.

We now know from Bernanke, the President's Debt Commission and others in our government that double digit growth in GDP for decades wouldn't get us out of this crisis. They also say we can't tax out of this.

They say we have to cut spending or face a collapse of the currency and government. So, do you let a million die now, or 10 million die later?

I believe you have to do, as Mr. Jay suggests and "give them water" as long as you can. That time will let those that understand why we can't avoid a collapse, more time to prepare, including, maybe, some of the millions that will die later.

Another thing we have to remember is that while the farmer is in a drought, we have no water to give him. We are bankrupt and all aid we give has to come from either debt or printing money. Both lead to a collapse, not recovery according to our government accountants.

To give the farmer 2 gallons, we have to pay for 10 gallons but we never get delivery on the other 8 gallons.

Again, this chart of diminishing returns shows how we passed the point of no return.

Nobody wants a depression and those pushing for cutting spending, don't know what they are asking for unless, they are thinking losing a few million people now is better than losing even more later. They know there is no way to avoid it and that the more we delay it, the worse it will be.

That is why we are trapped. If we cut spending, we collapse and if we don't, we collapse and that is according to our own government. They all agree that we have to cut spending as soon as there is a recovery but, the spending isn't creating a recovery and the more we spend, the less chance we have of a recovery.

It isn't the debt, but rather, the interest on debt that will destroy us and cause the collapse before we can do any improvement that is enough to really end deficit spending.

Keep in mind that before this drop and GDP and continued high unemployment, the President never saw deficit spending below $700 billion and even then, project it getting higher and higher every year even with no slowdowns, black swan events or changes in interest rates that return them to even near normal.

This is not this President or any president's fault in recent history. This is the result of flawed economic and monetary theories since 1913. The Federal Reserve was supposed to end financial crisis. Yet, they created boom/bust cycles, one after another with first loose money policy and then tight. They created the bubbles we had, they created the financial crisis we are in now (with the help of Congress using the flawed theories to base policies in both parties on.

I hope they will continue to try in help if for no other reason than that millions who now know there is no way out are preparing better.

The wealthy are buying homes in other nations, gold in some cases, by the ton, diamonds, art, foreign businesses, moving money out of the nation, etc. Many in the middle class are doing things to better prepare for a collapse here that they will be caught in. They are buying gold, storing food, getting alternative power sources, planting gardens, etc.

The more time they have to prepare, the fewer that will die when the collapse comes.

We will be living through something nobody wants to live through and 10 million have left the country. Only historians looking back at this time when an empire collapses, will find it "interesting." Not having to live through it and suffer what the people will go through will insulate their thinking to one of "how could they have been so dumb?"

There are government programs we could cut or eliminate and thereby reduce the deficit without hurting the economy or citizens. Just recognizing the vast size of the current government and its bloated programs suggests there has to be some places such cuts could be made. And specifically--the National Public Radio and National Endowment for the Arts are no-brainers.

And. we could eliminate all corporate and farm subsidies, all grants to non-profits and colleges, and all foreign aid-- and we're talking big money. Plus we could cut back all the future obligations for government employee retirement and health packages.

I have worked in budgeting and cost control all my life and there is no such thing as a fixed cost, an essential expenditure, or a firm too big to fail! All the bail-out money sent to Goldman Sachs--via AIG-should be returned! And these are just the tip of the ice-berg.

You could eliminate all those things and it would reduce the deficit at most, a hundred billion. Mandatory spending on entitlements and other "untouchables" exceed tax revenues.

Bill, the whole government outside of three departments run on a few hundred billion. Thus, you could eliminate over 80 departments and agencies and not reduce the deficit by even a third.

Tax revenues are projected to be $2.57 billion in the proposed 2011 budget that the President submitted to Congress and that they chose to sideline until after the election.

Now they realize that not only will we not get those tax revenues but, that spending has to go up for mandatory spending even with the freeze on S.S. Medicare/Medicaid goes up the more the dollar stays down due how much of what it needs is imported. They also have to pay more for food for patients, power, fuel for back up generators, insurance for employees, and on and on.

One reason we won't get the tax revenues is due to the hundreds of thousands of lay offs that Bernanke says cities and states must do to balance their budgets and pay interest on their debt.

More and more economists and government accountants are warning that if S.S. and Medicare/Medicaid aren't cut by large amounts, we will not win this battle between tax revenues and outflows.

While I think this is low, lets look at how the $2.1 trillion in tax revenues for this year, compares to spending needs next year.

Thus, if we eliminated 50% of the Defense budget, we will still be under water before we even begin funding the other 80 or so departments and agencies.

Naturally, I compared this to this years tax revenues because we were having some improvement in some sectors. However, this downturn is not going to help increase revenues anywhere near the $2.56 trillion they had hoped for.

We are still sending jobs, businesses and investment dollars overseas and that doesn't help tax revenues.

This is another reason the FED is so desperate to get inflation going and increase profits in the international companies. Their earnings converted into dollars will make them higher and thus, we get more tax revenues.

Sounds good, except that food, energy and medical costs will keep going up because of that inflation causing global rises in CPI that have to be passed on to us in our imports. We also have to pay more for exports as they will also have prices that reflect global CPI increases, not ours as much at first, only later.

So, even if we see inflation get us to $2.56 trillion in tax revenues, the costs of Medicare/Medicaid and other things will go up even faster.

The only thing I can think of is to have a total dumping of the 17,000 page tax code, and go with a very simple tax that raises import prices while reducing U.S. prices. Ooops! That means that since we import so much, that the years it would take to get business going here again, would kill the economy first before it could ever help.

Your comment - "Austrians? Their solution is mass unemployment and deflation..." is not factual.

First, Austrians advocate price flexibility, including wages. It is labor unions and their government supporters who, in effect, advocate higher unemployment.

Before FDR's Wagner Act that gave labor unions power to bludgeon business, businesses were able to minimize layoffs by temporarily reducing wages to bring their costs into line with their reduced selling prices for goods. Better for all workers to have lower pay temporarily than for many of them to lose their jobs. Wage reductions spread the hit over the entire work force.

Labor unions, with the full weight of the Federal government behind them, demanded higher wages in the face of high double digit unemployment, which meant that, to compensate, huge numbers of non-union labor had to be laid off, with not even reduced wages. The rest of us paid for this self-centeredness with higher living costs than necessary.

We saw this self-centered class warfare's ultimate effect in the demise of our major automobile manufacturers. We see it today in New York State, where I live. Public employees unions not only are unwilling to consider reductions in their gold-plated benefits packages to avert the state's bankruptcy. They demand raises at a time of high unemployment in non-government venues.

Second, with regard to deflation, most prices naturally decline (unless artificially propped up by the government) when demand lessens. Demand lessens when large industries like housing construction overbuild, and buyers no longer can support their bloated personal debt.

Austrians don't advocate deflation. They say that financial bubbles are produced by over-creation of money by the Fed and its support for credit expansion by the banking industry. Those bubbles are accompanied by price run-ups that exceed underlying, long-term real demand. When Austrian economists observe the empirical data of the real world (instead of ivory tower computer models of abstract, reified macroeconomic numbers), they merely note that over-inflated prices in over-expanded industries must return to levels that underlying real demand will support.

People have garage sales when they have accumulated too many things or things that they no longer need. Nobody in his right mind would expect buyers to pay original retail prices. If garage sellers want to clear out their stuff, they have to cut prices, often to a small fraction of original prices. That's deflation, yes, but it also is simple common sense.

Posted by .(JavaScript must be enabled to view this email address) on 11/01 at 01:21 AM

Well, Tom, Jan, and Bill,

It will be very interesting to see how the elections today change the complexion of Congress, and whether the newly conservatized House can do anything along the lines you suggest.

Posted by .(JavaScript must be enabled to view this email address) on 11/02 at 10:31 AM

Well, J. J,.

The elections have indeed changed things, and we will see if the new members of Congress can manage to rein in spending. I would hope they can cut the 100 billion a year in "minor" areas that I mentioned above, and then move on to entitlements where, as Jan indicates, the major savings must be made.

However, I stand by the importance of chopping at the "mimor" areas--for two reasons:

1., the mere 100 billion is, over the next ten years, a trillion dollars off what would be the eventual national debt. If such "minor" cuts had been faced up to ten years ago, we would be one trillion less in debt. and,

2., if Congress doesn't have the guts to chop those minor areas, how do you ever expect them to chop at the more sensitive entitlements?